IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Discounts for Lack of Marketability and Control
This free, guided checker walks your team through the key decision points for Discounts for Lack of Marketability and Control. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Which standard of value governs this engagement, and does it permit entity-level discounts?
The standard of value decides whether discounts are even permitted before you quantify them. Fair market value recognizes discounts for lack of control and marketability; a statutory fair value standard often excludes them, and financial-reporting fair value prohibits blockage discounts. Confirm the controlling authority before applying any discount.
Apply fair market value, under which discounts for lack of control and marketability are recognized. Frame any control or marketability adjustment to the specific holder under investment value. Confirm whether the governing statute and case law exclude minority and marketability discounts before applying any. Apply ASC 820-10-35 or IFRS 13.9, which prohibit blockage and generally do not apply an entity-specific marketability discount.
Official guidance: IRS estate and gift tax valuation
Is the subject interest freely marketable - a publicly traded security, or an interest with a contractual, near-term right to convert to cash at a determinable price?
Marketability measures how quickly and certainly an interest converts to cash. A publicly traded share is marketable; a minority interest in a private company generally is not. The presence of a genuine, near-term liquidity mechanism at a determinable price is what removes a marketability discount from scope.
Treat the interest as marketable; a marketability discount is not supported, though a control discount may still apply.
Official guidance: IRS estate and gift tax valuation
Which empirical basis will support the discount for lack of marketability?
A defensible marketability discount is anchored to empirical evidence, not a rule of thumb. Restricted-stock and pre-IPO studies give observed ranges, and option-based models bound the cost of illiquidity by holding period and volatility. Document why the selected basis fits the interest's expected holding period and risk before relying on it.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IRS estate and gift tax valuation
Taken together, how do the entity-specific marketability factors compare with the empirical study medians?
Mandelbaum weighs entity-specific factors - holding-period risk, dividend or distribution history, prospects for sale or IPO, restrictive agreements, and access to information - to move the discount off the study averages. Tie each factor to evidence so the concluded discount is supportable rather than asserted.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IRS estate and gift tax valuation
Is the subject a controlling interest that can direct distributions, policy, and a sale of the enterprise?
A discount for lack of control adjusts for a holder's inability to direct distributions, compensation, capital structure, or a sale. Control interests take no such discount but may still be non-marketable. Confirm the interest's actual prerogatives against the governing agreements before concluding on control.
Apply the marketability discount only; a controlling interest takes no discount for lack of control.
Official guidance: IRS estate and gift tax valuation
Was the base (pre-discount) indication of value measured on a control basis - control-level cash flows or control transaction multiples - so control benefits must be removed to reach this non-controlling interest?
The level-of-value chart runs from control value, down through the marketable-minority level, to the non-marketable-minority level. Apply a discount for lack of control only when the base indication sits at the control level; a guideline-public-company indication is already at the marketable-minority level.
Apply the marketability discount only; the base is already at the marketable-minority level so no control discount is needed.
Official guidance: IRS estate and gift tax valuation
Which basis supports the discount for lack of control (the implied minority discount)?
A discount for lack of control is commonly derived by converting observed control premiums into an implied minority discount, or by modeling the lost prerogatives directly. Rev. Rul. 93-12 confirms that a non-controlling block is valued as a minority interest even among family members. Avoid double-counting control and marketability effects.
Apply a discount for lack of control from the implied minority discount, then the marketability discount. Apply a discount for lack of control from observed control premiums, then the marketability discount. Reflect the lost control prerogatives in cash flows, then apply the marketability discount.
Official guidance: IRS estate and gift tax valuation
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